A post-South Stream worldAs Russia outlines its newly proposed Turkish Stream pipeline project, it occurs to me that the Turk Stream vs Trans Anatolian (TANAP)/ Trans Adriatic (TAP) dynamic is a repeat of the South Stream vs Nabucco battle of a few years ago. In the wake of the South Stream pipeline project cancellation (more on that later), Russia needs another export route and so has signed an MOU with Turkey’s BOTAS to build a pipeline under the Black Sea to the Turkey-Greece border.
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The Turk Stream has the curious position of being both an alternative and a complementary project to TANAP/TAP (these are two out of the three proposed Southern Gas Corridor projects that would bring Azerbaijani gas to Turkey and Europe by 2018 and 2020 respectively). On one hand, the Russian and Azeri pipeline projects compete for the same southern corridor pipeline route; on the other hand, Turk Stream only goes as far as Turkey and will need additional pipeline capacity to get the gas further into Europe, and therefore may need some help from TAP.
Why must the Turk Stream pipeline stop at the Turkish border with Greece? For the same reason that South Stream eventually became unviable – European competition laws. The EU’s Third Energy Package (TEP) rules that no single company can own a pipeline through which it supplies gas. Gazprom can build its pipeline to Turkey without minding this rule, as neither country is an EU member, but onward transport of the gas would fall under TEP regulation. Russia will need its customers to buy directly from the planned natural gas hub in Turkey – the same location where TANAP is planned to culminate and tie up with TAP. It’s looking very busy in the Ipsala district of Turkey!
Might Russia be in a position to reserve space in TAP for onward transport of Turk Stream gas? In his article on Russia’s new gas strategy for the Natural Gas Europe advisory, Ilgar Gurbanov gives the following reasons why this might be a possibility: “First of all, Russia has no stake in TAP. Second, in the first stage, TAP is supposed to use 50% of its total capacity for 10 billion m3/yr. It can expand its capacity up to 20 billion m3/yr (100% of total capacity) in the second stage. Third, the EU Commission’s regulation left 50% of TAP’s total capacity open for Third Party Access (TPA) for the Expansion Capacity (second stage). Fourth, the EU regulation also states that upon request of a third party, TAP is obligated to construct additional entry/exit points in Greece to receive gas from non-Shah Deniz sources.”1
The role of the EU is crucial in how this will all play out. Since a general European wobble about dependency on Russian gas a decade ago, the new thinking is that an EU-wide energy union will help bolster and protect EU members from a world where Gazprom holds all the cards. Last month, Gazprom CEO Alexei Miller spoke in Berlin about what sort of price agreement could be envisaged if the Russian oil major were forced to negotiate one price for Europe, saying: “A common price isn’t the lowest price. It will most obviously be the highest price.” He is suggesting that some EU countries would lose their historically low rate if a move towards a ‘one price’ system were made, but it remains to be seen how Gazprom could take such a hard line with a single-buyer system.
In the meantime, Russia has promised Greece the transit of 47 billion m3 of gas once Turk Stream is built, and hopes to co-operate on the building of further pipeline infrastructure (perhaps Gazprom can utilise the Interconnector-Turkey-Greece-Italy pipeline). Russia also continues to build relationships with Hungary, Serbia and Macedonia, whose pro-Russia leanings, along with those of debt-stricken Greece, go against the rest of Europe.
Finally, spare a thought for Ukraine and Bulgaria, both left out of the picture by an increasingly aggressive Russia and unsympathetic neighbours.
In the battle of South Stream vs Nabucco, neither pipeline was victorious; perhaps this time around we’ll see Southern Gas Corridor routes built in harmony with a Russian gas delivery conduit.